Amendment in TDS Rates in India from 1St April 2010

Central Board of Direct Taxes under ministry of finance had issued a pdf press notification on 20th Jan. 2010. In this notification, TDS has been amended from 1st April 2010. Last year, Govt. of India passed Finance Act. In this bill, a new section, section 206AA was introduced. The section simply tells us that as deductees, it is your duty to intimate or show PAN card to your deductors otherwise, you will pay TDS with rate of 20% on total income.

You are well educated and you know that it is duty of a person/ deductors who pay any amount to other persons/deductees to deduct some amount in the form of TDS and to deposit to Govt. Now, today is 12th April, 2010 and you should make you PAN card fastly without intimation of PAN to deductors, you have to pay high TDS.
According to new provisions which have applied since 1st April,” Every deductee who has no PAN card will pay tax at higher of prescribed rates or 20% which will be more. This amendment will also apply for non residents deductees.

Understand it with example

For Resident Deductee:

In case the deductee fails to intimate the PAN to the deductor, then the deductor shall be required to deduct TDS at following rates:

1. Rates prescribed in the Income-tax Act or in the Finance Act, OR

2. At the rate of 20 per cent

Whichever is higher.

For Non Resident Deductee

The issue is particularly important to non-residents because in most of the cases their income is taxable @10 per cent while in the absence of PAN, tax will be deducted @20 per cent.

A new provision relating to tax deduction at source (TDS) under the Income Tax Act
1961 will become applicable with effect from 1st April 2010. Tax at higher of the prescribed
rate or 20% will be deducted on all transactions liable to TDS, where the Permanent Account
Number (PAN) of the deductee is not available. The law will also apply to all non-residents
in respect of payments / remittances liable to TDS. As per the new provisions, certificate for
Deduction at lower rate or no deduction shall not be given by the assessing officer under
section 197, or declaration by deductee under section 197A for non-deduction of TDS on
payments shall not be valid, unless the application bears PAN of the applicant / deductee.

In this respect, the decision of the Hon’ble Bombay High Court in the case of CIT vs Siemens Aktiongesellschaft, [310 ITR 320] is worth consideration. In the said case, it was held that by an unilateral amendment in the domestic law, it is not possible to tax income which otherwise was not subject to tax under the tax treaty. Since Section 206AA has been inserted by a unilateral amendment, it cannot override the rates prescribed in the tax treaty.

Nevertheless, there is a possibility that after section 206AA comes into force, i.e. w.e.f. 01.04.2010, the income of non-residents could be subjected to higher rate of TDS @20 per cent% if PAN is not available. In such cases, in order to claim refund of excess TDS deposited, the non-residents will have to file their return of income in India. This will be a cumbersome procedure.

Reference from Banner on SBI ATM

Third reference, I got from SBI's ATM's banner which was pasted just above the ATM machine from where I was getting money. Actually, banks are woring as deductors in India. They pay large amounts to customers in the form of interest or other form. So, all bank managers have published these banners in India and you can find it in any ATM.

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